New home sales plunged in the past month to the slowest pace of the year. Despite the monthly decline, the year-to-date sales were up by 18 percent. Based on housing permit issuance trends, new home sales are likely to turn upwards in upcoming months.
In September, new home sales—after accounting for seasonal factors—fell to 468,000 annualized units. New homes sales account for less than 10 percent of the total home sales market at the moment, and so is a much smaller player compared to existing home sales. Yet the pace of new home sales will determine the eagerness of homebuilders to get back into market. From a broad market point of view, more homebuilding is needed in America to tame home price growth.
There was pullback in every region. The Northeast region took the biggest dive with sales collapsing 62 percent from the prior month.
Homebuilders are still indicating very little trouble in selling newly constructed property. It took on average only 3.3 months to find a buyer, which is almost a historically fast pace. The reason for fewer home sales is due to not very much new home production. Local authorities need to issue more housing permits. The data suggests they are, so it appears only a matter of time before more new homes will be constructed and sold.
Homebuilders are catering to the high-end buyers as evidenced by high prices on the homes sold. The median price of newly constructed homes was $296,900. The current premium of new home prices over existing home prices is 33 percent. That is roughly double the average premium gap between new and existing home prices over the past 30 years. This focus on the high-end is also contributing to the constraint of first-time homebuyers in reaching the market.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.